IHS Global Insight Perspective | |
Significance | Volkswagen (VW) and BYD have signed a memorandum of understanding (MoU) to explore the development of hybrid and electric vehicle technologies. |
Implications | This deal comes as no surprise given BYD's experience with lithium-ion battery technology, although it will not be alone in serving Volkswagen, as both Sanyo and Toshiba have also signed up to supply the German automaker. |
Outlook | VW is pursuing a strategy centred on alternative-powertrain vehicles to protect itself against the stricter regulations that are being introduced by governments around the world. The tie-up with BYD is in line with its overall strategy in China, where it maintains a significant market share but will face pressure from the government's plans to reduce oil-based fuel usage and vehicle emissions. |
Germany's Volkswagen (VW) and China's BYD have signed a memorandum of understanding (MoU) to develop vehicles with alternative powertrains. In a statement, the German automaker said that the MoU was signed by the chairman of the board of management of VW, Dr Martin Winterkorn, and the chairman of the board of management of BYD, Wang Chuanfu, with the objective of exploring the options for a partnership in the area of hybrid and electric vehicles (EVs) powered by lithium ion (Li-ion) batteries.
The MoU was signed during a visit by a delegation of executives from BYD to VW's Elektrotraktion Technology Centre in Isenbüttel (Germany), which was then followed by a visit to the automaker's test track in Wolfsburg to test-drive several vehicles, including the Golf twinDrive and a prototype EV.
Dr Ulrich Hackenberg, member of the board for technical development at VW, said in a statement that hybrids and electric vehicles will play an "increasingly important role" in the company's expansion of its "BlueMotionTechnologies" branding. He added that this could be particularly true for the Chinese market, and that potential partners such as BYD will support it in achieving this goal.
Outlook and Implications
For the uninitiated, VW's decision to strike up such a relationship with a Chinese company may seem like a strange step for one of the world's largest automakers. However, despite its relatively young age, BYD has made significant progress in both battery manufacturing, where it is now one of the top manufacturers of nickel-cadmium (NiCD), nickel-metal hydride (NiMH), and Li-ion rechargeable cells, and the manufacture of passenger cars. Although it initially began production of mainly traditional gasoline (petrol)-fuelled models, which have grown extremely popular over the past year, many of these have also been shown as prototypes and concept vehicle with gasoline-electric hybrid, plug-in hybrid, and full electric powertrains. Some of these are also close to being production ready, such as the plug-in hybrid F3DM, which has been approved by the Chinese government for sale in the country from December 2009, making it one of the first models to use this type of powertrain on sale anywhere in the world. Support for its activities has also come in the shape of a US$230-million investment from a U.S. company controlled by investor Warren Buffett.
According to earlier reports, much of the interest from VW stems from BYD's development of its Li-ion technology, which uses iron phosphate, which is said to have improved safety thanks to its higher resistance, longer cycle and calendar life, higher current or peak-power rating, and use of iron and phosphate, which have a lower environmental impact than the cobalt used in other types of Li-ion cells. This technology is also thought to be cheaper to manufacture. However, VW and its other group companies will not be relying on a single supplier for its business, having signed a deal with Toshiba to develop battery systems as well as an electric version of its Up! model (see Japan - Germany: 13 February 2009: VW and Toshiba to Develop Electric Passenger Car). It has also signed a deal with Sanyo, although this is thought to be focused on Audi (see Japan - Germany: 28 May 2008: Volkswagen and Sanyo Confirm Lithium-Ion Battery Collaboration).
Little is known about VW's plans for vehicles using battery power as part of their propulsion systems, but with increasingly stringent emissions regulations set to come into force over the next decade, such vehicles are likely to become increasingly important. As well as the electric Up! city car and an Audi Q7 hybrid, it is thought that the company will move forward with its twinDrive hybrid architecture, which will be found in the Audi A1/VW Polo and Audi A3/VW Golf. However, in light of the latest corporate average fuel economy (CAFE) regulations recently announced in the United States (see United States: 20 May 2009: U.S. Announces New National Fuel Economy Standards, Will Harmonise with Californian Regulations), it may be necessary for VW to make available a larger sedan in hybrid form, with the most obvious choice being the new model developed for the North American market, which will be built in Chattanooga, Tennessee from 2011; this would also benefit Audi's A4. However, the most likely reason why VW has chosen BYD is its exposure to the Chinese market and the government's growing fondness for alternative-powertrain technologies. The government is already intending to have around 60,000 such vehicles on Chinese roads by 2012, and it will no doubt expect this to grow exponentially further in the future as it looks to cut oil-based fuel usage and exhaust emissions. By having a Chinese partner and supplier in the country, VW is less likely to have to jump through the numerous hoops that Chinese investments of this type tend to involve, while it is also protecting itself from the change in demand that could take place in the market. It may also be able to gain certain synergies with BYD as demand for its vehicles using this technology expands.